Last week was fairly uneventful with markets experiencing light trade as Christmas ended the week. Here is a review of last week’s data as well as a broad look at 2015.
Not much happened in 2015:
Greece defaults, Plummeting oil prices, China’s softening economy, Iran trade deal, Manufacturing entered contraction, VW emissions scandal, Fed Rate Hike, Eurozone easing.
There were far more important things that occurred in 2015; such as terrorist attacks, Syrian refugees, mass shootings, ISIS’ expansion of control, and civil un-rest just to name a few. The prior items are the ones that shaped much of the market activity for 2015.
2015 in Review
Greek inability to marry austerity and economic recovery, while not surprising, still caused sluggish market performance during the first half of 2015. Then in mid-August the markets gave way to the global slowdown that was gripping China. Followed by the Iran trade deal spelled 500K barrels per day increase
to the existing glut of oil on the market. Further stressing the already distressed oil markets. For the first time since 2011 the US manufacturing index fell into contractionary territory. The VW emissions scandal, while seemingly a simple issue, meant far more to the German economy than you would think. In a nation where 1 in 7 workers are involved with the auto industry, consumer confidence was shaken mightily! This exacerbated an already weak Eurozone. The much anticipated Federal Reserve Board (FRB) rate hike finally occurred in the last meeting of 2015. To the contrary the European Central Bank has continued to ease policy.
2015 YTD Returns through 12/24/2015:
S&P 500: 2.20%
Russell 2000: -2.89%
MSCI EAFE: 0.13%
MSCI EM: -13.72%
Week in Review
Last week saw light trading and the traditional Christmas bump. The major news from last week was the surge in oil prices, with US crude futures increasing 9.7% for the week[1]. Much of the increase came as the US lifted a 40-year embargo on oil exports, as Brent crude futures only increased a little over 2%. Revised GDP data came in at 2.0% for Q3. Which was a reduction from the previously reported 2.1%, however above the expectation of 1.9%[2].
Conclusion
While 2015 lacked much of the punch many expected it to, it’s weak earnings and falling oil prices should lead to strong earnings for 2016. In addition, as year over year inflation numbers improve through the first half of 2016, expectations should heighten for a true FRB tightening cycle to begin. As improving employment continues inflation should move from the services sector to the commodities sector as well. In all, the 2016 outlook is bright coming off the weak 2015 performance. Headwinds will always exist, i.e. the supply glut with oil and geo-political concerns in the middle east.
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[1] www.investing.com – news
[2] www.jpmorganfunds.com – economic update